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CS Executive · Corporate Accounting and Financial Management · Accounting for Share Capital

Zenith Ltd redeems Rs 5,00,000 of fully paid preference shares at par entirely out of profits, with no fresh issue of shares. What amount must be transferred to the Capital Redemption Reserve (CRR)?

Rs 5,00,000 must be transferred to the Capital Redemption Reserve. When preference shares are redeemed out of profits, a sum equal to their nominal amount is transferred to CRR, and here no fresh issue proceeds reduce this requirement.

  1. ARs 5,00,000Correct
  2. BRs 2,50,000
  3. CNil, since redemption is at par
  4. DRs 1,00,000

Explanation

When shares are redeemed out of profits, a sum equal to the nominal amount of the shares redeemed must be transferred to CRR. With no fresh issue, the full nominal Rs 5,00,000 is transferred. Being at par does not remove the requirement.

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